Business acquisition loans

What is a business acquisition loan?

It is a term loan sized to the purchase price of a going concern, repaid from that business's cash flow after you take it over. The lender underwrites the target's tax returns, and the loan is secured by its assets plus your personal guarantee. Goodwill, the part of the price above the hard assets, is usually most of the deal, which is why banks lean on the SBA guarantee.

A typical structure: 10% from you, 10% to 20% as a seller note, and the balance as an SBA 7(a) loan. If the purchase includes the building, an SBA 504 can take the real estate. Our page on buying a business walks through the process.

Who qualifies for a business acquisition loan?

Lenders look at the business, you, and the deal. The business needs two to three years of returns showing enough profit to cover the loan at a DSCR of 1.25 after a reasonable salary for you. You need credit of 680 or higher, experience in the industry or in management, and 10% of the price in cash that is not borrowed. The price needs a valuation behind it.

• Declined most often: a price above what the cash flow supports, a buyer with no related experience, a seller who will not provide clean financials, and declining revenue in the last two years.
• Partial buyouts of an existing partner are allowed and common.

What does a business acquisition loan really cost?

A typical example: you buy a business for $1,000,000. You put in $100,000, the seller carries a $100,000 note on standby, and an SBA 7(a) loan covers $800,000 over ten years at about 10%. The loan payment is roughly $10,570 a month, or about $127,000 a year. If the business earns $250,000 before your salary and you pay yourself $80,000, the $170,000 left covers the payment at a DSCR of about 1.34.

Add the SBA guarantee fee of 0% to 3.75% of the guaranteed portion, packaging fees of $2,000 to $5,000, a valuation at $1,500 to $5,000, and legal fees. Model your deal in the SBA loan calculator.

How do you qualify, and what documents do you need?

From you: three years of personal tax returns, a personal financial statement, a resume, proof of the equity injection and a business plan with projections. From the seller: three years of business tax returns, interim financials, a debt schedule, the asset list and the signed letter of intent or purchase agreement. The lender orders a valuation on larger deals.

Our document checklist covers both sides. The seller's cooperation decides the timeline: clean, tax return based financials in week one mean a 60 day close, and spreadsheets that do not match the returns can add months or kill the loan.

How long does a business acquisition loan take?

Typically 60 to 120 days from a signed letter of intent to closing. The lender needs two to four weeks to underwrite, the valuation takes two to three weeks, and the purchase agreement, lease assignment, licenses and due diligence run alongside. SBA preferred lenders are faster than those that must send the file to the agency.

Get a lender prequalified on the deal before you sign the letter of intent. Sellers accept offers with financing lined up, and the lender's early read on cash flow tells you whether the price works. See how long business loans take for the detail.

When should you choose something else?

Choose seller financing for most of the deal if the business is small or the seller is motivated; many deals under $250,000 close with a seller note and no bank at all. Choose a conventional term loan if the deal is mostly hard assets and your bank will lend without the SBA fee. Choose a franchise financing structure if the target is a franchise unit, since the franchisor often has lender relationships.

Walk away if the numbers only work with your projections rather than the seller's history. Lenders underwrite the past, and so should you.

How do you apply for a business acquisition loan?

Apply once on this site with the target's financials and your application reaches SBA 7(a) lenders experienced in acquisitions in your industry, plus conventional lenders for asset heavy deals. It is free for your business, and we are paid the same whichever lender you choose. Or ask your AI assistant to apply through our MCP server: it reads the seller's returns and your statements, fills the application and submits it.